Variable Interest Entities and Unconsolidated Investments

We consolidate all of our VIEs where we have determined that we are the primary beneficiary. There were no changes to our determination of whether we are the primary beneficiary of our VIEs for the year ended December 31, 2019. We have the following types of VIEs consolidated in our financial statements:

Subsidiaries with Project Debt — All of our subsidiaries with project debt not guaranteed by Calpine have PPAs that provide financial support and are thus considered VIEs. We retain ownership and absorb the full risk of loss and potential for reward once the project debt is paid in full. Actions by the lender to assume control of collateral can occur only under limited circumstances such as upon the occurrence of an event of default. See Note 8 for further information regarding our project debt and Note 2 for information regarding our restricted cash balances.

Subsidiaries with PPAs — Certain of our majority owned subsidiaries have PPAs that limit the risk and reward of our ownership and thus constitute a VIE.

VIE with a Purchase Option — OMEC had a ten-year tolling agreement with SDG&E which commenced on October 3, 2009 and expired on October 2, 2019. Under a ground lease agreement, OMEC held a put option to sell the Otay Mesa Energy Center for $280 million to SDG&E, pursuant to the terms and conditions of the agreement, which was exercisable until April 1, 2019 and SDG&E held a call option to purchase the Otay Mesa Energy Center for $377 million, which was exercisable through October 3, 2018. The call option held by SDG&E expired unexercised.

OMEC has executed a new 59-month Resource Adequacy (“RA”) contract with SDG&E. The RA contract received initial regulatory approval by the CPUC on February 21, 2019. This approval was subject to a 30 day appeal period from the date of the issuance of the CPUC decision. On March 27, 2019, an appeal of the CPUC decision was filed with the CPUC. Accordingly, on March 28, 2019, we provided notice of our exercise of the put option, which we subsequently rescinded by agreement following the CPUC’s denial of all appeals of the new RA contract on August 1, 2019. On October 3, 2019, the RA contract with SDG&E commenced. As a result, we retained the 608 MW Otay Mesa Energy Center, which plays an integral role in electric reliability in Southern California.

As the call and put options have terminated and the project debt has been fully repaid, we determined that OMEC no longer meets the definition of a VIE during the third quarter of 2019.

Consolidation of VIEs

We consolidate our VIEs where we determine that we have both the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and the obligation to absorb losses or receive benefits from the VIE. We have determined that we hold the obligation to absorb losses and receive benefits in almost all of our VIEs where we hold the majority equity interest. Therefore, our determination of whether to consolidate is based upon which variable interest holder has the power to direct the most significant activities of the VIE (the primary beneficiary). Our analysis includes consideration of the following primary activities which we believe to have a significant effect on a power plant’s financial performance: operations and maintenance, plant dispatch, and fuel strategy as well as our ability to control or influence contracting and overall plant strategy. Our approach to determining which entity holds the powers and rights is based on powers held as of the balance sheet date. Contractual terms that may change the powers held in future periods, such as a purchase or sale option, are not considered in our analysis. Based on our analysis, we believe that we hold the power and rights to direct the most significant activities for most of our majority-owned VIEs.

Under our consolidation policy and under U.S. GAAP we also:


•	perform an ongoing reassessment each reporting period of whether we are the primary beneficiary of our VIEs; and

•

evaluate if an entity is a VIE and whether we are the primary beneficiary whenever any changes in facts and circumstances occur, such as contractual changes where the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of a VIE that most significantly affect the VIE’s economic performance or when there are other changes in the powers held by individual variable interest holders.

Noncontrolling Interest — At December 31, 2019, we owned a 75% interest in Russell City Energy Company, LLC, one of our VIEs, which was also 25% owned by a third party. On January 28, 2020, we completed the acquisition of the 25% noncontrolling interest of Russell City Energy Company, LLC for approximately $49 million. For the year ended December 31, 2019, we fully consolidated this entity in our Consolidated Financial Statements and accounted for the third party ownership interest as a noncontrolling interest.

VIE Disclosures

Our consolidated VIEs include natural gas-fired power plants with an aggregate capacity of 6,669 MW and 7,880 MW, at December 31, 2019 and 2018, respectively. For these VIEs, we may provide other operational and administrative support through various affiliate contractual arrangements among the VIEs, Calpine Corporation and its other wholly-owned subsidiaries whereby we support the VIE through the reimbursement of costs and/or the purchase and sale of energy. On August 14, 2019, we repaid the OMEC project debt outstanding balance utilizing a portion of the proceeds from our 2026 First Lien Term Loans and cash on hand. See above for further discussion of OMEC. Other than amounts contractually required, we provided no additional material support to our VIEs in the form of cash and other contributions during each of the years ended December 31, 2019, 2018 and 2017.

U.S. GAAP requires separate disclosure on the face of our Consolidated Balance Sheets of the significant assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE and the significant liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. In determining which assets of our VIEs meet the separate disclosure criteria, we consider that this separate disclosure requirement is met where Calpine Corporation is substantially limited or prohibited from access to assets (including cash and cash equivalents, restricted cash and property, plant and equipment), and where our VIEs have project financing that prohibits the VIE from providing guarantees on the debt of others. In determining which liabilities of our VIEs meet the separate disclosure criteria, we consider that this separate disclosure requirement is met where there are agreements that prohibit the debt holders of the VIEs from recourse to the general credit of Calpine Corporation.

Unconsolidated VIEs and Investments in Unconsolidated Subsidiaries

We have a 50% partnership interest in Greenfield LP which is also a VIE; however, we do not have the power to direct the most significant activities of this entity and therefore do not consolidate it. Greenfield LP is a limited partnership between certain subsidiaries of ours and of Mitsui & Co., Ltd., which operates the Greenfield Energy Centre, a 1,038 MW natural gas-fired, combined-cycle power plant located in Ontario, Canada. We and Mitsui & Co., Ltd. each hold a 50% interest in Greenfield LP. On November 20, 2019, we sold our 50% interest in Whitby, a limited partnership, which operates the Whitby facility, a 50 MW natural gas-fired, simple-cycle cogeneration power plant located in Ontario, Canada.

Calpine Receivables is a VIE and a bankruptcy remote entity created for the special purpose of purchasing trade accounts receivable from Calpine Solutions under the Accounts Receivable Sales Program. We have determined that we do not have the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance nor the obligation to absorb losses or receive benefits from the VIE. Accordingly, we have determined that we are not the primary beneficiary of Calpine Receivables because we do not have the power to affect its financial performance as the unaffiliated financial institutions that purchase the receivables from Calpine Receivables control the selection criteria of the receivables sold and appoint the servicer of the receivables which controls management of default. Thus, we do not consolidate Calpine Receivables in our Consolidated Financial Statements and use the equity method of accounting to record our net interest in Calpine Receivables.

We account for these entities under the equity method of accounting and include our net equity interest in investments in unconsolidated subsidiaries on our Consolidated Balance Sheets. At December 31, 2019 and 2018, our equity method investments included on our Consolidated Balance Sheets were comprised of the following (in millions):



	Ownership Interest as of December 31, 2019	2019		2018
Greenfield LP⁽¹⁾	50%	$	66	$	55
Whitby⁽²⁾	—%	—		15
Calpine Receivables	100%	4		6
Total investments in unconsolidated subsidiaries		$	70	$	76

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(1)	Includes our share of accumulated other comprehensive income/loss related to interest rate hedging instruments associated with our unconsolidated subsidiary Greenfield LP’s debt.


(2)	On November 20, 2019, we sold our 50% interest in Whitby to a third party and recorded a gain on sale of assets, net of approximately $5 million.

Our risk of loss related to our investment in Greenfield LP is limited to our investment balance. Our risk of loss related to our investment in Calpine Receivables is $48 million which consists of our notes receivable from Calpine Receivables at December 31, 2019, and our initial investment associated with Calpine Receivables. See Note 17 for further information associated with our related party activity with Calpine Receivables.

Holders of the debt of our unconsolidated investments do not have recourse to Calpine Corporation and its other subsidiaries; therefore, the debt of our unconsolidated investments is not reflected on our Consolidated Balance Sheets. At December 31, 2019 and 2018, Greenfield LP’s debt was approximately $299 million and $301 million, respectively, and based on our pro rata share of our investment in Greenfield LP, our share of such debt would be approximately $150 million and $151 million at December 31, 2019 and 2018, respectively.

Our equity interest in the net income from our investments in unconsolidated subsidiaries for the years ended December 31, 2019, 2018 and 2017, is recorded in (income) loss from unconsolidated subsidiaries. The following table sets forth details of our (income) loss from unconsolidated subsidiaries and distributions for the years indicated (in millions):



	(Income) loss from Unconsolidated Subsidiaries									Distributions
	2019			2018			2017			2019		2018		2017
Greenfield LP	$	(13	)	$	(11	)	$	(14	)	$	—	$	48	$	8
Whitby⁽¹⁾	(11		)	(15		)	(10		)	26		5		20
Calpine Receivables	2			2			2			—		—		—
Total	$	(22	)	$	(24	)	$	(22	)	$	26	$	53	$	28

____________


(1)	On November 20, 2019, we sold our 50% interest in Whitby to a third party.

Inland Empire Energy Center Put and Call Options — We held a call option to purchase the Inland Empire Energy Center (a 775 MW natural gas-fired power plant located in California) at predetermined prices from GE that could be exercised between years 2017 and 2024. GE held a put option whereby they could require us to purchase the power plant, if certain plant performance criteria were met by 2025. On February 1, 2019, we entered into an agreement with GE, which among other things, terminated our call option and GE’s put option related to the Inland Empire Energy Center. As per this agreement, we will take ownership of the facility site and certain remaining site infrastructure and equipment after closure and decommissioning of the facility at a future date, until such time GE continues to own, operate and maintain the power plant, including directing any closure activities. As GE continues to direct all such significant activities of the power plant, we have determined that we no longer hold any variable interests in the Inland Empire Energy Center and it is not a VIE to Calpine.